Rating and target price: First “buy” rating, the target price is HK$4.30, corresponding to 7.4 times/3.8 times/2.9 times the 2023/2024/2025 price-earnings ratio.

Our opinion: 1) Rikuwako (Rikuwako or “company”) is mistaken for a traditional chemical company that produces homogenized low-end products; 2) Rikuwo's product matrix is improving, and is less sensitive to the economic cycle than its peers.

Investment theme: Riken Chemical was previously a basic chemicals producer, but its valuation was seriously undervalued due to its expansion into the high-potential new materials market. Although it used to rely mostly on chemicals like sodium hydroxide and hydrogen peroxide, its recent involvement in lithium-ion battery additives and high-end fluoropolymers indicates that the company is undergoing a transformation. It is estimated that after the completion of the new materials projects in Jiangxi and Zhuhai in 2025, the company's new materials revenue will reach approximately HK$4.7 billion (RMB 4.3 billion). Once it has reached its full potential in the field of new materials, the market is likely to recognize this gap, leading to substantial revaluation.

Catalysts: 1) New materials projects will be put into operation in 2024 and 2025; 2) Prices of major products will continue to rise and profitability will increase.

Risks: 1) Due to the sharp increase in production capacity, market competition may become more intense in the next few years; 2) Advances in battery technology may have a profound impact on the demand for the company's products.